Roughly a third of oil producers are at high risk of slipping into bankruptcy this year as low commodity prices crimp their access to cash and ability to cut debt, according to a study by auditing and consulting firm Deloitte.
The report, based on a review of over 500 publicly traded oil and natural gas exploration and production companies worldwide, highlights the deep unease permeating the energy sector as crude prices have sat near their lowest levels in over a decade, eroding margins, forcing budget cuts and thousands of layoffs. The 175 companies at risk of bankruptcy have over $150 billion in debt, with the slipping value of secondary stock offerings and asset sales further hindering their ability to generate cash, Deloitte said in its Feb. 16 report.
“These companies have kicked the can down the road as long as they can and now they’re in danger of kicking the bucket,” William Snyder, head of corporate restructuring at Deloitte, told Reuters. “It’s all about liquidity.”
While 95% of oil producers can produce crude for less than $15 per barrel – a testament to cost savings and technological improvements since mid-2014 when only 65% of producers could produce near that level – that may not be enough for some, Deloitte found. Producers are on track to slash budgets again this year, the first time that has happened consecutively since 2016, as many have said prices must rise further to boost profitability.
Some oil producers are also choosing to liquidate hedges for a quick infusion of cash, a risky bet. “2016 is the year of hard decisions, where it will all come to a head,” said John England, vice chairman of Deloitte.